Medical Loss Ratio (MLR) Rebate Checks

The Patient Protection and Affordable Care Act (PPACA) included a check-and-balance system to ensure that insurers were using premium dollars to mostly pay claims on behalf of an insured block of business.  In the Small Group and Individual Market, insurers must spend 80% of premium dollars for payment of claims, administration of Plans, etc.  (85% for Large Group.)  Any insurer spending less than those amounts are required to issue “rebates” back to their insured population in a given block of business.  Even though insurers diligently try to file their rates at such a level to ensure they are close – without a crystal ball, none should be expected to get it right on the money.  As a result, checks are being distributed to those policyholders in the blocks of business affected by the mandate.

Rule Regarding Distribution to Employees

MLR Rebate checks not only affect the contributions made to health insurance premiums by the employer – but also any employee who participated via premium withholding.  Just because the employer (Plan Sponsor) receives the check from the insurer, doesn’t mean that it can be deposited and forgotten.  Employers are required to distribute any applicable portion back to participating employees – and have a couple options on how to do so.  The Department of Labor (DOL) issued guidance on distribution in Technical Release No. 2011-04 here.

Are MLR Rebates Subject to Federal Income Tax?

Depending upon the method used to contribute toward the payment of health insurance premiums (i.e. pre-tax deductions, etc.), and how an employer chooses to distribute to an employee, MLR rebates could be subject to income tax withholding.  For further reading, please refer to Section D of the IRS FAQ here.

Employers Need Help Calculating $

Most employers are pleasantly surprised when they receive a check from their insurance carrier – especially when they are fairly sizable as reported by several of our clients.  We hope that most also understand the implications for failure to distribute properly and seek advise on what exactly to do with it.  In order to assist, we can provide a calculator published by Anthem / Wellpoint to help employers determine the amount of rebate that each participating employee is entitled to receive.  If you would like a copy of this calculator, please email me at:

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